ACCA Advanced Audit and Assurance (AAA) Practice Exam

What is the result of a qualified opinion as defined in ISA 705?

1. The auditor has no reservations about the financial statements

2. The financial statements contain material misstatements

3. The auditor is unable to obtain enough evidence to form an opinion

4. The auditor recommends modifications to future audits

The correct answer is: The financial statements contain material misstatements

A qualified opinion, as defined in ISA 705, indicates that the financial statements contain material misstatements. This type of opinion is issued when the auditor identifies particular issues that are significant enough to warrant attention, but not so pervasive that they render the overall financial statements misleading. In cases where a qualified opinion is issued, the auditor believes that while the majority of the financial statements are presented fairly in accordance with the applicable financial reporting framework, one or more specific aspects do not comply due to identified misstatements. This serves to inform users of the financial statements that they should be wary of the reported figures as certain items might not accurately reflect the financial position or performance of the entity. The other options do not reflect the nature of a qualified opinion. An unqualified opinion, for instance, would indicate no reservations about the financial statements, while being unable to obtain enough evidence to form an opinion would lead to a disclaimer of opinion. Recommendations for future audits would not be addressed in the context of a qualified opinion, as it specifically focuses on the current financial statements, rather than suggesting changes to future audit practices.